How the ‘Reeves Freeze’ on income tax thresholds could cost you up to £1,300

The government’s extended freeze on income tax thresholds could leave you £1,300 worse-off, according to new analysis.

In the 2025 Autumn Budget, chancellor Rachel Reeves confirmed the freeze on income tax thresholds will be extended by three years from 2028 to 2031. The chancellor, whose government pledged not to raise income tax rates in their 2024 election manifesto, said she knew it would affect working people and wouldn’t “pretend otherwise”.

The extension will mean taxpayers paying up to as much as £1,292 in extra tax over the three years compared to the freeze ending in 2028, based on calculations by investment platform AJ Bell.

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Laura Suter, director of personal finance at AJ Bell, said: “The chancellor has doubled down on what was once the Conservatives’ brainchild: the income tax freeze is now firmly the ‘Reeves Freeze’, extended for another three years until 2031.

“The result is that every taxpayer in the country will see their wages quietly eroded by higher tax bills.”

How the freeze will chip away at your earnings

The freeze on income tax thresholds until 2031 will hit those with bigger pockets more.

Someone with a yearly income of £15,000 today faces an extra tax bill of £259 over the three years between 2028 and 2031, with the personal allowance frozen at £12,570.

Someone on £45,000 a year will take a hit of £683 over the same three years, while someone with an annual income of £47,000 now will have to fork out an extra £1,292.

Someone on £47,000 is likely to become a higher rate taxpayer between now and 2028 due to rising wages, according to AJ Bell, meaning they’ll be dragged into paying 40% tax on a portion of their income. In England, Wales and Northern Ireland, you pay the higher rate of income tax on taxable income between £50,271 and £125,140. The 45% additional rate applies on income over £125,140.

Over 8.3 million people have now paid higher or additional rate tax since 2021, when income tax thresholds were first frozen, with more set to be dragged into this net between 2028 and 2031.

The extension announced in the Budget will rake in £12 billion in extra revenue, according to the Office for Budget Responsibility (OBR).

If there had been no freeze since 2021, the OBR estimates the personal allowance would have been £17,470 by 2031, and the higher rate threshold £70,370 – more than £20,000 higher.

Suter added: “Nothing can make up for the lost years where income tax bands have seen no inflationary uplift.

“The cumulative cost is staggering: the OBR estimates it will cost taxpayers £56 billion a year by 2029-30, around £1,330 per taxpayer on average.”

Source: AJ Bell

How to protect yourself from frozen income tax thresholds

There are steps you can take to mitigate the effects of frozen thresholds eroding your hard-earned cash.

James Norton, head of retirement and investment at Vanguard Europe, suggested optimising your ISA and pension allowances, like the annual allowance, which shelter your investments from income, dividend and capital gains tax.

“For those in retirement, consider the best way to draw your income. Most people will be best served by taking money out of cash savings and general investment accounts first. This means you can leave money to grow tax free for longer within ISAs and pensions,” said Norton.

Andrew Prosser, head of investments at investment platform InvestEngine, said increasing pension contributions can reduce your tax bill and means you’ll benefit from pension tax relief.

“For higher-rate taxpayers, a £20,000 contribution can effectively cost just £12,000 once government and personal tax relief are applied, making careful planning more important than ever.”